Appointment of Internal Auditor in the company

After the re-introduction of the Companies Act, 2013 from the Companies Act, 1956 has brought up some major changes in so many provisions. One of the huge impacts of these changes is on the provisions related to the appointment of auditors in the Company and the duration of the appointed auditor in a company. One of the provisions that restrict the internal auditors to be appointed in a particular company for long durations is Section 139 of the Companies Act, 2013.

 

First Auditor Appointment in the Company:

The first auditor in the company must be appointed within 30 days of the incorporation of the company or its registration. If in any case the board in the company fails to appoint an internal auditor within the stipulated time limit, then it must intimate about the same to the members in the company. Within 90 days of intimation to the members, an Extraordinary General Meeting must be held in the company in which an internal auditor is to be appointed. The auditor appointed hereby, holds the auditor's office till the conclusion of the First Annual General Meeting of the company. The first auditor of the company is not mandated to file Form ADT-1 for an appointment with the ROC.

 

Appointment of Auditor in First Annual General Meeting:

In the first annual general meeting, each registered company in India must appoint an internal auditor either individual or a whole firm who must hold the office from the date of the conclusion of the first AGM till the date of the conclusion of the sixth AGM of the company. These means they will serve for 5 continuous financial years as internal auditor.

 

Term Rotation for Internal Auditor:

The appointed internal auditor serves the company for 5 financial years subsequently. After the term is completed, the same individual is not permitted or allowed as per Companies Act to be reappointed as an Internal Auditor in the same company for another 5 years. If the company has appointed a firm that has completed more than two five year terms consecutively, it is not allowed to be reappointed as well by the act. There are so many advantages of an internal auditor therefore the company must carefully choose a qualified person having proper experience in the field for the term.

 

Process of Appointment of Internal Auditor:

A company in India must appoint an internal auditor. To appoint an auditor the following procedure must be followed step by step:

·         A letter of proposal must be sent to the internal auditor.

·         The company must obtain an acceptance letter from the auditor along with a Certificate of Eligibility.

·         Wherever applicable, an Audit Committee Meeting and Board Meeting are to be conducted. In the Annual General Meeting of the company, where the internal auditor appointment must be recommended to the shareholders.

·         Annual General Meeting must be conducted where the resolution for the appointment of the internal auditor is to be passed.

·         Once the shareholders approve the appointment, a letter of engagement or appointment is to be sent to the internal auditor. A certified copy of the pass resolution is to be attached to the letter as well.